Venezuela: Unnatural Disaster

Alongside Venezuela’s growing political tension, the collapse of the country’s economy and health care system are leading to an equally dangerous social crisis. To stave off a humanitarian disaster that could well turn today’s polarisation violent, Venezuela needs an emergency program, careful reform of price controls, political consensus, and international support.

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I. Overview

The accelerating deterioration of Venezuela’s political crisis is cause for growing concern. The collapse in 2014 of an incipient dialogue between government and opposition ushered in growing political instability. With legislative elections due in December, there are fears of renewed violence. But there is a less widely appreciated side of the drama. A sharp fall in real incomes, major shortages of essential foods, medicines and other basic goods and breakdown of the health service are elements of a looming social crisis. If not tackled decisively and soon, it will become a humanitarian disaster with a seismic impact on domestic politics and society, and on Venezuela’s neighbours. This situation results from poor policy choices, incompetence and corruption; however, its gravest consequences can still be avoided. This will not happen unless the political deadlock is overcome and a fresh consensus forged, which in turn requires strong engagement of foreign governments and multilateral bodies.

As the 12th largest oil producer in the world, with the largest reserves, and a beneficiary of the most sustained oil price boom in history, Venezuela ought to be well placed to ride out the recent collapse of the international price of crude. The oil boom, combined in the early years at least with the government’s redistribution policies, produced a significant decrease in poverty under the administration (1999-2013) of the late Hugo Chávez. The economy was showing signs of strain, however, well before the 50 per cent fall in prices at the end of 2014, a year in which GDP shrank by more than 4 per cent and inflation rose to 62 per cent. Expropriations of private land and businesses, stringent price and exchange controls and inefficient, often corruptly-run state enterprises undermined the nation’s production of basic goods and services. Having incurred massive debts, spent most of its international reserves and emptied a stabilisation fund set up for such contingencies, the government faces a critical shortage of hard currency and the prospect of triple-digit inflation this year and can no longer afford to make up domestic shortfalls of consumer goods with imports.

The impact has naturally been felt most keenly by the poor, who rely on increasingly scarce supplies of price-controlled food, medicines and other basic goods for which they must often queue for hours, with no guarantee of success. Those with ailments such as cancer, HIV-AIDS or cardiovascular disease can go months without medicines they require to survive. Hospitals and even private clinics cannot maintain stocks of medicines and other basic supplies, including spare parts to repair equipment. The hospital crisis is exacerbated by government failure to complete a rebuilding program begun in 2007 or fulfil promises to construct new facilities. Thousands of doctors and other medical personnel have resigned due to low wages and unsafe working conditions. Surgery waiting lists are growing, and staff vacancies go unfilled.

Some economists predict a sudden collapse in food consumption and widespread hunger, and public health specialists already say that some surveys are showing chronic malnutrition, although the country is not yet on the verge of famine. The collapse of the health service, however, can have pernicious short-term effects, including uncontrolled spread of communicable diseases and thousands of preventable deaths.

Aside from purely humanitarian concerns, Venezuela’s neighbours and the wider international community have pragmatic reasons for acting. If a solid institutional and social welfare framework can be restored through a negotiated settlement, and economic measures taken to deal with inflation and scarcity, a humanitarian crisis can be averted. If not, the collapse of the health and welfare infrastructure is likely to make political conflict harder to manage and could lead to a further erosion of democracy and an increasing likelihood of violence.

This in turn would have an impact beyond Venezuela’s borders. Potential risks include large-scale migration, the spread of disease and a wider foothold for organised crime. Without a change of economic policy, the country is heading for a chaotic foreign debt default, probably in 2016. An unstable Venezuela unable to meet its international commitments could destabilise other countries in the region, particularly Caribbean nations that have come to rely on subsidised energy from Caracas. It would also have a direct impact in Colombia, along a border already under multiple threats.

This briefing is the product of research conducted between April and July 2015, which included field trips to Zulia state and the greater Caracas area. Among a wide variety of sources consulted were many grassroots sympathisers of the government and several mid-ranking officials. Unfortunately, the ministers of food and health did not answer requests for interviews.

To forestall the severe consequences of a humanitarian crisis in Venezuela:

The government must acknowledge the problem. Concealing true statistics and harassing those who publish or demand access to data must cease.

Any political dialogue or agreement must prioritise concerted action to guarantee supplies of scarce goods, including medicines, medical supplies and basic foodstuffs, for the neediest, and a social safety net without partisan intervention or manipulation that incorporates as providers non-governmental actors, including the Catholic Church and humanitarian organisations.

The current unworkable system of price and exchange controls that fosters corruption, smuggling and the black market and fuels inflation and scarcity needs to be carefully dismantled and replaced with mechanisms that provide a safety net for the poor without stifling production.

The government should seek broad support for an emergency program that restores economic equilibrium and protects the most vulnerable from the consequences of the necessary adjustment, rather than blaming the opposition and foreign governments for an imaginary “economic war”.

The opposition should resist the temptation to score political points, acknowledge there is no painless solution and present a clear economic and social reform agenda.

Venezuela’s neighbours and the broader international community must abandon their reluctance to act, and explicitly press for restoration of the rule of law and of institutional checks and balances, beginning with close oversight of the December parliamentary elections.

They should also help alleviate the social costs of the current crisis by offering food and medical aid and helping Venezuela cope with and control existing epidemics and prevent future ones.

Venezuela's Last Flickers of Democracy

Venezuela’s political crisis took another fateful turn on Sunday 30 July with the rigged election of an all-powerful assembly mandated to rewrite the constitution. In this Q&A, Senior Analyst for the Andes Phil Gunson says Sunday’s vote represents the end of what little democratic space still existed and takes the country on the path to dictatorship.

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On Sunday, the chavista government led by President Nicolás Maduro held a one-sided “election” to a Constituent Assembly – a supremely powerful, 545-seat institution with the power to revise, or even scrap, the country’s constitution. With Venezuela reeling from crippling social and economic crises as well as four months of almost daily opposition-led protests, the government is playing the Constituent Assembly card in a bid to cement its grip on power.

Can the vote be described as a free, fair and democratic election?

In the conventional sense of the word, Sunday’s vote was not an election. It was a bid by the government to eliminate dissent from Venezuela’s political system at the stroke of a pen rather than face a free and fair election that it almost certainly would have decisively lost. This is the culmination of Venezuela’s long descent toward full dictatorship, something the country has not seen since the 1950s.

Under the 1999 constitution – inspired and promoted by Maduro’s predecessor and mentor Hugo Chávez – the electorate should decide whether to convene a constituent assembly. But the Maduro government circumvented this prior popular consultation and, instead, the National Electoral Council (CNE) fast-tracked the election, violating both the law and its own regulations.

The government also rigged the voting system to ensure that, even if the opposition participated, victory was all but guaranteed. This was in contrast to previous elections in which – while the playing-field was heavily tilted in the government’s favour – the results broadly reflected voters’ intentions. The system was skewed against heavily populated urban areas where the opposition is strongest. The rules also provided for 173 assembly members to be elected by eight arbitrarily chosen “sectors” of the population (such as workers or pensioners). It meant around 40 per cent of the electorate had just one vote, while the majority could vote for both a “territorial” and a “sectoral” representative, thus undermining the principle of “one-person-one-vote”. No audited voter registries exist for these “sectors”, which were prone to government manipulation.

[Sunday's vote] was a bid by the government to eliminate dissent from Venezuela’s political system at the stroke of a pen rather than face a free and fair election

The National Electoral Council has been complicit in the government’s attempts to subvert the constitution. Since 2015, both a legally mandated recall referendum – which would have given the electorate the opportunity to remove President Maduro – and local and gubernatorial elections are supposed to have taken place. But foot-dragging by the council has prevented all three from happening. In contrast, the council was able to organise Sunday’s vote at record speed.

Voter turnout is a matter of considerable dispute. The council claims that over eight million people cast votes on Sunday, but independent sources suggest it was less than half that number. The Reuters news agency obtained internal council figures indicating that half an hour before polls closed, a mere 3.7 million – less than 20 per cent of eligible voters – had showed up. The company that supplied the voting machines, Smartmatic, announced that the real turnout was at least a million votes less than the official results. Moreover, because the council allowed many voters to choose their polling station, and because voters were not stamped with the traditional indelible ink, there is reason to suspect that some voted more than once.

What powers does the Constituent Assembly have and how will it be used?

While the Constituent Assembly inevitably will alter relations between the government and opposition, it could also bring to light splits within the government camp itself.

As a supra-constitutional body, the assembly has the power to override existing institutions, restructure the state and even remove a president from office. There is no check on its actions nor any limit on how long its deliberations can last.

President Maduro has indicated his intention to transform Venezuela into a communal state akin to Cuba. This would mean disbanding the country’s parliament, known as the National Assembly, which the opposition Democratic Unity (MUD) coalition has controlled since early 2016. Under the 1999 constitution, the legislative branch of government is supposed to be independent and act autonomously. But the Constituent Assembly could shut it down and strip legislators of their immunity to criminal prosecution. In his celebratory speech Sunday night, Maduro made clear those were his intentions.

In theory, the Constituent Assembly could remove the president. Will it remain loyal to President Maduro?

While the Constituent Assembly inevitably will alter relations between the government and opposition, it could also bring to light splits within the government camp itself. The most important question the Assembly will face once installed is who will become its president. The outcome will depend on which faction from the ruling party is deemed to have won most seats. If Maduro’s main rival, Diosdado Cabello – Vice President of the United Socialist Party of Venezuela (PSUV) – were to prevail, this would represent at least a change of style, and could presage a split in the government. Maduro, a former trade union leader who received ideological training in Cuba, represents the hardline, civilian left of the movement. Cabello, an army captain who took part in Hugo Chávez’ 1992 coup, belongs to its military wing, and tends to be more hawkish in public than Maduro. His comrades from the military academy are now well-placed generals. Friction between the two camps, each of which controls distinct state institutions and sources of revenue, has occasionally surfaced despite largely successful efforts to date to maintain a unified front against the opposition. Cabello is seen by some as hostile to Cuban influence in Venezuela, but whether one of the two is more likely to negotiate remains a matter for speculation.

What options are left open to the opposition?

The opposition has staged almost daily protests for the past four months. Skirmishes with government security forces have left more than 100 people dead, with at least a dozen killed on Sunday alone, making it the most violent day since protests began in April. The original demands were free and fair elections; admission of food and medical aid to ease the humanitarian crisis; release of political prisoners (of which there are now over 400), and respect for separation of powers, including parliament’s authority. Four months on, none of the opposition’s demands has been met. Worse, the country has taken several steps backwards, notably with the creation of the Constituent Assembly and the return to jail on Monday of two important opposition leaders – Leopoldo López, founder of the Voluntad Popular party, and Antonio Ledezma, the metropolitan mayor of Caracas[fn]Ledezma was returned to house arrest on Friday, 4 August, and López on Saturday, 5 August.Hide Footnote– in a night-time raid conducted by the secret police.

Even as many [opposition] supporters grow disenchanted, others could become radicalised and opt for a more violent approach.

For its part, the opposition coalition faces the challenge of explaining to its followers why it has failed to date and more crucially, it needs to come up with a new strategy. If President Maduro carries out his threat to close down the National Assembly, the opposition will lose the only national institution it controls. In the days ahead, keeping its supporters on the streets may become increasingly difficult, because of both increased repression and likely popular disillusionment. It is already showing signs of severe internal strains over issues such as the formation of a parallel government and whether or not to participate in regional elections, now scheduled for December.

Without a clear strategy, and faced with intense persecution, many opposition leaders and parliamentarians could be forced into exile or go into hiding. As a result, the formal opposition leadership – parliamentarians, mayors, state governors and party leaders – risks losing control of the movement. Even as many supporters grow disenchanted, others could become radicalised and opt for a more violent approach. On Sunday, an explosive device injured half a dozen policemen in the opposition-dominated east of Caracas. Should such events recur, Venezuela’s political conflict could morph into a low-intensity civil war.[fn]In an incident that has yet to be fully clarified, on Sunday 6 August a group of armed men who identified themselves as rebel soldiers attacked the Fuerte Paramacay military base in the city of Valencia.Hide Footnote

It is essential that the MUD distance itself from the violent minority and remain united around a strategy of civil disobedience. The formation of a parallel government in the hope of obtaining international recognition likely would be a distraction. While many governments have indicated that they will not recognise the Constituent Assembly, and will continue to regard the current National Assembly as the legitimate legislature, they will not withdraw recognition from the Maduro government in favour of a body that does not hold real power. The decision as to whether to participate in regional elections is a more difficult and divisive one, especially now that the National Electoral Council has demonstrated its willingness to commit outright fraud. But if the campaign for state governorships were combined with a demand for transparent elections and qualified election observers, it might serve a purpose.

What has been the reaction of regional and international powers to Sunday’s vote?

The international community has awoken – albeit belatedly – to the idea that without outside help Venezuela will continue to implode; it also realises that such a development would have negative consequences for the country but also for the broader region and wider world. Tellingly, dozens of countries, including the European Union (EU) and its member states and most of the largest nations in the Americas, have said they will not recognise the outcome of Sunday’s vote.

The Organization of American States (OAS) so far has been unable to take substantive action. Venezuela’s Latin American allies – namely Ecuador, Bolivia and Nicaragua, as well as Caribbean states that receive subsidised Venezuelan oil – have blocked any initiative perceived as unfavourable to the Maduro government. They might well view Sunday’s vote as encouragement to continue down this path. Other OAS members have begun to seek alternative fora: on 8 August, Peru’s foreign ministry will host a meeting of regional foreign ministers that could result in the formation of a “contact group” with the aim of pressuring Caracas to return to democracy.

Much will depend on the posture taken by Venezuela’s key international backers, Russia and China.

In response to Sunday’s vote, the U.S. imposed targeted sanctions on President Maduro, freezing any of his assets “subject to U.S. jurisdiction”. It has refrained for now from applying broader sanctions, such as restricting exports to Venezuela of the light crude and gasoline components that are essential to its refining industry. The Trump administration has made it clear, however, that it may tighten the screws at a later date. But such sanctions could worsen the humanitarian crisis and thus provide the government with a convenient excuse for the country’s dire economic situation.

The regime’s Achilles heel is its economic and financial crisis, and in particular its crushing foreign debt. Some US$5 billion in debt service payments must be disbursed before the end of this year. A chaotic default would transform the country’s economic landscape and further weaken the government’s international and domestic position. Much will depend on the posture taken by Venezuela’s key international backers, Russia and China. As a major oil producer, Russia could step in to reduce the impact of future U.S. oil sanctions, while China could increase its financial support for Caracas by extending the debt repayment period, affording the Maduro regime some breathing space. So far, Moscow has reiterated its public stance condemning what it sees as “outside interference”, while Beijing has remained silent.

What can we expect to see in the coming days and weeks?

The government already has said it will move to dismiss the attorney general, Luisa Ortega Díaz, a vociferous critic of its recent actions, and close down the opposition-led parliament.[fn]The Constituent Assembly voted unanimously on Saturday, 5 August, the day after its inauguration, to remove Luisa Ortega from her post.Hide Footnote Opposition leaders, including parliamentarians who will lose their immunity from prosecution, may be jailed or end up in exile or in hiding. The regime likely will wish to crack down rapidly in order to deny the opposition time to regroup and revise its strategy.

The government has shown no interest in negotiations, but that should not be an excuse for inaction.

Yet the government too faces a difficult period. It must be aware of how few people actually voted on 30 July and, as noted, will confront internal power struggles over control of the Constituent Assembly. The regime could fracture, but how it does so would make a significant difference. Under one scenario, a more pragmatic faction, willing to genuinely negotiate with the opposition, could take over. Alternatively, the army could fragment and split between supporters and opponents of the government, plunging the country into deeper chaos and violence. For outside actors to bank on divisions within the regime, in other words, could be a risky gamble. The best outcome would be for the international community to offer members of the regime a safe exit for themselves and for the country as a whole, in exchange for a credible negotiations process that reverses recent governmental decision.

In this context, what can be done?

As Crisis Group has long advocated, what Venezuela needs are credible, structured negotiations between the government and opposition to resolve the political deadlock and Venezuela’s grave economic crisis. Getting the two sides to sit down together is harder than ever. It will require agreement on some basic principles, such as respect for the 1999 constitution, and some prodding (or at least tacit consent) on the part of the government’s most important foreign allies – above all Cuba, Russia and China – as well as regional powers. In a best-case scenario, growing domestic and international pressure would persuade the government of the need to agree on a transitional agreement, including a calendar for elections under strict international oversight, preceded by the appointment of a neutral, broadly accepted electoral council.

The government has shown no interest in such negotiations, but that should not be an excuse for inaction. Even as the regime remains intransigent, important steps can be taken: establishing an international contact group which would include allies of the Maduro government; planning for emergency assistance, notably to help the growing stream of refugees and, where feasible, carrying it out; imposing carefully targeted, broadly coordinated sanctions, focusing on those that will prevent government insiders and their allies to pilfer money from the national coffers; and persuading countries still inclined to do business with the Constituent Assembly to join the growing number that have repudiated it. At the same time, credible assurances should be conveyed to the government’s core leadership that a negotiated exit can include guarantees for their personal safety, and to mid-ranking officials that a transitional justice system can be put in place to prevent witch-hunts.

Of course, those assurances only will be persuasive to the regime if guaranteed by Caracas’ key international allies and if fully backed by the opposition. The latter’s burden is heavy in this respect: the opposition will need to understand that no end to the conflict – and certainly no peaceful one – is likely to come about through a sudden regime-change or under a winner-take-all scenario. The present situation is dire. But there is still a good chance of avoiding more widespread violence if those intent on doing so act in concert and in good faith.